Final answer:
In a collusive oligopoly, the practice where firms set prices low enough to deter new entrants is known as limit pricing, a strategy aimed at maintaining market power and preventing competition.
Step-by-step explanation:
When firms in a collusive oligopoly set their prices low enough to prevent new competitors from entering the market, this practice is known as limit pricing. The goal of limit pricing strategy is to set the price point at a level where the potential profit for new entrants would not justify the cost of entering the market. Essentially, this strategy creates a barrier to entry, maintaining the oligopoly's control over the market and preserving existing firms' market shares.
An oligopoly that collaborates in this manner is essentially exerting collective market power akin to a monopoly to avoid the entrance of competitors. This collaboration is an example of collusion, and when organizations formally come together to set such strategies, they form a cartel. Limit pricing is different from price leadership, where one company sets the price and others follow; mutual interdependence, which recognizes the reliance of firms on each other's pricing and output decisions; and pricing the demand curve, which is not a recognized term in this context.